Your Coverage & Care
Your Coverage & Care
Understanding Health Coverage

Understanding Formularies

A formulary is the approved list of generic and brand name prescription drugs covered by your health plan. In most health plans, the list is developed by a pharmacy and therapeutics committee comprised of physicians from various medical specialties, pharmacists and nurses. The committee selects the drugs in each treatment (therapeutic) class based on quality, safety, effectiveness and cost/benefit. A therapeutic class is a group of medications that treat a specific health condition (e.g. rheumatoid arthritis) or work in a certain way (antidepressants). Health plans will only pay for medications that have been approved by the U.S. Food and Drug Administration (FDA).

With each drug, you will either pay a fixed amount (copay) or a percentage of the total cost (coinsurance). How much you pay will vary based on the type of health plan you have. A generic drug may have a $20 co-pay, or you may have to pay 40% or more of the cost for a brand-name drug.

Before you choose a health plan, you should review the formulary to determine if your drugs are covered and under which tier.

Drug Tiers

Usually, formularies have two, three or four tiers (or categories). But some health plans are expanding to five or more tiers.
The tier determines:

  • how much you pay 
  • if you need prior approval before filing a prescription
  • if you are limited to a certain number of pills per month or year (unless authorized by the plan)

Tier 1 usually includes generic medications and has the lowest copays.

Tier 2 has a higher copay than tier 1 and usually includes “preferred” brand name medications. With preferred drugs, your plan has negotiated with a pharmaceutical company to obtain a lower price. In return, your health plan lists the medication as a “preferred drug.” This may make it more cost-effective for you.

Tier 3 usually includes non-preferred brand name medications. Your health plan may place a medication in tier 3 because it is new or because there is a similar drug on a lower tier that may provide you with the same benefit at a lower cost. You should expect to pay a higher copay than for tier 2 drugs.

Tier 4 may include some medications considered “specialty drugs” used to treat rare or serious medical conditions or any drug that requires a special exception (e.g. weight loss drugs or experimental medications). You will pay the highest out-of-pocket costs for these drugs.

Whether a formulary has four, five or six tiers, the highest tier is often called the “specialty tier.”
Keep in mind that an insurance provider may list the same medication on different tiers on different plans being offered. For example, drug A is on tier 2 for Plan #1 but on tier 3 for Plan#2. Also, different insurers may list the same drug on different tiers.

When you enroll in a health plan, you should receive a booklet that provides information about the formulary, the medications included, copayments or coinsurance amounts for each tier and related processes or restrictions. If you have not received a formulary, call the customer service number on the back of your insurance card to request one.

Insurers post the formulary for every plan on their website. The list can change during a plan year and certain drugs can move either up or down in tier. Some changes depend on the availability of new drugs, and others occur if the FDA makes a new recommendation about an existing drug.

Medication Deductibles

Some plans do not cover the cost of prescription drugs until you meet your plan’s annual deductible. The average deductible for a family plan in 2016 was $7,983, according to eHealth’s Price Index report. Pay attention to plans that require you to fulfill a deductible before drug coverage kicks in. Some plans may have special deductibles solely for prescription drugs. These deductibles are separate (and generally a lot lower) than your overall deductible for other medical care. 

Drug Coverage Process and Restrictions

Most health plans have procedures that may limit the use of certain medications. Some common restrictions include:

  • Prior Authorization - Your doctor must obtain approval from your health plan before prescribing a drug.
  • Quality Care Dosing - Your health plan checks prescription medications before they are filled to ensure that the quantity and dosage meets the recommendations of the FDA.
  • Step Therapy - Your health plan requires you to try a certain drug first to treat your condition before using another medication for that condition if the first drug fails to work. Usually, the first medication is less expensive. Also known as a “fail first” policy.

Your health plan may make an exception to their drug formulary decisions for certain situations, for example:

  • Your physician asks the plan to cover a medication that is not on the formulary.
  • You ask the plan to waive coverage restrictions or limits on your medication.
  • You ask the plan to provide the medication with a more affordable copayment.

In general, your health plan will consider these exceptions if their lack of coverage of your medication would cause you to use a less effective drug or cause you to have a harmful medical event.

If your request for an exception is turned down, you have the right to appeal that decision. All health plans have an appeal process, which include people who are not employed by the plan. If your appeal is denied you can still choose to have your doctor prescribe the medication, but you will be responsible for the full charge of the drug.

Manage Your Drug Costs

Three biosimilar medications are approved for the treatment of inflammatory arthritis and related conditions. Biosimilar medications have the potential to provide safe and effective treatment to people with arthritis at a potentially lower cost than the name-brand biologic medications.

Generic medications may also be as affective at treating your condition as a brand name version. According to the FDA, generic versions of medicine offer the same quality and performance as brand name but cost on average 80-85% less. Generic medicine has the same active ingredients as a brand name and is identical in dosage, strength and safety. So always ask your physician if a new medication is available in generic form.

Check your prescription for “dispense as written”. If your physician writes this on your prescription, you can only receive the brand name version of a drug; even it is available as a generic. You may end up having to pay the generic copay plus the difference in price between the brand name and the generic drug.

Be sure to visit an in-network pharmacy designated by your insurer. You may see a pharmacy logo included on your member ID Card. If not, confirm the pharmacy with your insurer.

Also, you should bring the formulary with you to doctor’s appointments. Talk with your health care provider about prescribing a generic drug or a preferred brand name drug if it is appropriate for your condition to help you manage your out-of-pocket costs. You always have the right to ask about costs before you get a prescription or pick up the medication.

Learn more about financial assistance programs to help you afford your medications on

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